Tuesday, July 31, 2012

Happy New Year!

Aug 1 is here and we’re finally clear of the debate and acrimony; we can focus on new business.  Or can we?

The other day I was out looking at crops just outside of town.  Standing alongside a wheat field I took a deep breath and said to my friend, “Smell that.”

“Smell what?”

“Take a deep breath; notice that?  No more BS.” 

Taking another focused breath, I added, “No wait, it’s still there – almost so imperceptible you don’t even notice it right away.  But it’s there – it hasn’t gone away completely.”

On the eve of The New Marketing Era in Western Canada, there are still those that are grasping at the shadows of the mandatory CWB – or as a friend called it yesterday, CWB - the “Compulsory Wet Blanket”.  The Canadian Wheat Board Alliance and The Friends of the Canadian Wheat Board (let’s simplify things and call them The Alliance & Friends) continue to try to convince us of that the end of the CWB will create marketing anarchy and poverty in Western Canada.  Fortunately, they couldn’t be further from reality.

At the risk of giving them more attention than they deserve, I want to remind people how off base detractors of the new market are in their arguments.  Here are the Top Ten Myths of the New Market:

10.    The grain industry will become more concentrated and powerful
Time will tell of course, but as many of us had suggested, there are new players – Gavilon Inc., Lansing Olam Canada and CHS, to name just three – becoming increasingly active in Western Canada.  Something tells me there is more to come as things evolve.  Competition is a good thing.

9.       Producer cars will no longer be a viable option
On this one, they may be partly correct, but for the wrong reason.  The Alliance & Friends have argued that without the single desk there will be no one there to support producer cars.  Here they’re missing two points:
            a)    The new CWB has access to terminals and intends to continue to promote producer cars and work with farmers that want to load them. 
b)      Farmers who load producer cars have argued that they are worth about $1200 per car by avoiding primary elevator handling fees.  But, in a competitive market without the CWB single desk, those handling fees will come under pressure, thereby reducing the financial attraction of producer cars.  Will producer car loaders still load producer cars if the perceived advantage is only $200? 

8.       Trucks of Canadian wheat will overwhelm US elevators; US farmers will demand trade sanctions
The Alliance & Friends have suggested that Canadian farmers will fall over each other to sell into the US, driving the US price lower.  And this will lead to US farmers demanding trade sanctions against Canada.
Yet higher US prices have migrated north, taking away the incentive to drive south.  Almost immediately, new crop wheat prices in Canada were very competitive with US prices and continue to be.  Arbitrage is working – just not in the direction the Alliance & Friends would have wanted it.

As for US farmers’ outrage – according to a Reuters news story, Jim Peterson, marketing director of the farmer-run North Dakota Wheat Commission expects US farmers will benefit on the global stage from an end to the CWB's "price-distortion".

Keep in mind, the 14 or so US trade actions were against the CWB – not Canadian wheat.

7.       The quality of Canadian grain products will go down
Bill Gehl, president of the CWB Alliance, said that the quality of Canadian food products will go down without the single desk because the buyers will be free to buy the cheapest grain on the planet – and grain used in Canada will be the radio-active variety from around Chernobyl.  There are two problems with this argument:

            a) Food manufacturers were always free to buy from whomever and from wherever they wanted.  The CWB never had control over Canadian millers or bakers. 
b)      Since Canadian food manufacturers could always buy from wherever they wanted, and since – as Mr. Gehl will tell you – they are profit maximizing enterprises, they already buy the cheapest grain they can, which, as it happens, comes from Canada.

6.       ICE Futures Canada’s new futures contracts have failed
Although I haven’t heard this from the Alliance & Friends, they are critical of all futures markets. 
Yes, the new contracts were launched over six months ago and, yes, there is still only light trade.  But those saying they have failed should be reminded of Mark Twain’s comment “the report of my death was exaggerated”. 

The CME’s new Black Sea wheat futures started trading in early June and so far in the two months to July 30th have a grand total of 9 open contracts – and in only one month.  By comparison, after its first two months of trading, ICE milling wheat had close to 100 open contracts – and in three different months.  Although you may hear the CME speak disparagingly about ICE wheat futures, you’ll never hear them talk that way about their own Black Sea contract.  They know better than to talk a contract down (unless it’s your competitor’s).

The new ICE futures contracts for milling wheat, durum and barley are tools needed in Western Canada, particularly after the end of the single desk.  But these things take time and take effort.  Futures contracts are exceedingly difficult to kick start; everyone says they will trade them when they get liquidity – but how do they get liquidity unless people start in?

Rather than pessimistically talking these contracts down, we need to optimistically talk them up.  Hedgers need to place orders, farmers and end users need to ask for basis contracts based on the new contracts, traders need to spread ICE futures against other contracts like Minneapolis.  Wouldn’t it be great if the new CWB offered basis contracts off ICE futures?

In the long haul, these contracts have the potential to provide better price discovery, more stable basis and better transfer of risk than anything else.  It’s undoubtedly worth a little effort.  And it’s definitely an exaggeration to say they failed.

5.       The new CWB will fail
Apparently, according to the Alliance & Friends, voluntary pooling won’t work.  It seems that those within the new CWB didn’t get that memo because they’re charging ahead with them regardless.  Like anything else, CWB will succeed only if it's supported.  My guess is that if it succeeds with voluntary pools, it will be in spite of core CWB supporters turning their back on it.

Embarrassingly, in true “dog in the manger” fashion, there is nothing the Alliance & Friends would like more than the demise of the new voluntary CWB.

4.       There will be no one to focus the industry or act on behalf of farmers
As many of us have stated previously, there are many models of trade organizations that can be used to design one for wheat in Western Canada.  The Canola Council of Canada is a great example with participation from all corners of the canola world, working toward a common goal – a thriving industry.  It’s no wonder that the canola industry is not only thriving, it is flourishing.

Luckily no one is listening to the Alliance & Friends and they’re just getting on with things, first with a planned Barley Council and also a potential Cereals Council.

3.       Prices will go down as farmers will drive them lower
Canadian farmers selling into a market will not drive the global price of a commodity lower.  If anything, they could drive the basis wider (lower), but total handling (and marketing) costs paid by farmers under the CWB system were the highest in the world. 

Ok, I don’t know that for a fact, but I do know that the handling costs were remarkably high compared to every other market I am aware of, making the theoretical basis extremely weak to begin with.  Add to that the high “marketing costs” borne by farmers because of the way the CWB worked: shipping 1’s against a sale of 3’s; demurrage to the farmers’ account; thinking despatch is a source of revenue (when it is a cost); shipping wheat from southern Alberta through Churchill (because it is the cheapest routing for grain from North East Sask (yes, I know, it doesn’t make any sense to me either); delaying shipment to a customer (for up to a year) at the customer’s request and getting nothing for it; shipping wheat from Montreal to Vancouver; selling only half a crop (durum); etc, etc.  Ka-ching, ka-ching.

I’ll stick my neck out a bit here and say the cost of handling and “marketing” that farmers will pay will go down with the end of the single desk.  (There really is only one way to go here.)  And, ignoring global price movements, that means higher prices for farmers.

2.       Small farms will suffer without the single desk
The trend over the past three decades has been toward larger and larger farms, mostly due to decreasing profitability.  And that’s WITH the CWB single desk.  I’m not about to say that the trend toward larger farms will stop with the end of the single desk, but with increased competition, lower marketing costs, increased marketing options and a more functional marketplace, profit per acre should go up making smaller farms more viable.

1.       The CWB is the only one offering price averaging or pooling.
Well, that’s not entirely correct.  A new, independent company called Farmers Advanced Risk Management Company (FARMCo) is launching a price averaging tool for farmers.
Quite frankly, I got fed up listening to the Alliance & Friends (and a few academics) about how voluntary pooling wouldn’t work (because it didn’t work in the 20’s and 30’s). So I developed a program to show how it could work; the result is FARMCo and the Advanced Grain Pricing Program (AGPP).

FARMCo’s mission statement explains its position:

“FARMCo will play a leading role in changing the grain marketing culture in Western Canada, particularly with farmers, by advancing and broadening sound grain marketing concepts and providing meaningful tools and techniques for both farmers and other grain merchandisers.”

A fixed price Initial Payment – like they used in the 20’s and 30’s – will always struggle in a voluntary situation.  Fundamental to the design of the AGPP is that the price paid to farmers is variable, moving and keeping pace with the market.

Cash flow suffers under conventional pools, with restricted delivery and relatively small Initial Payments.  Waiting for over a year for a Final Payment doesn’t help.   The AGPP does not restrict deliveries, rather it pays a premium for deferring deliveries, giving an incentive to store.  It has an Initial Payment of about 85-90% of the current market and the final payment is made within two to three months of the sale, making it cash flow friendly.

In the AGPP, we use futures and options to provide “better than average” pricing, exploiting carrying charges to the farmer’s benefit.  In addition to getting paid to store, basis is not pooled, so participants get everything their local market has to offer.

FARMCo is focused on providing value to the benefit of farmers – hence the name.  Not only will farmers be among its shareholders, all profits (beyond a fixed management fee) go directly to its farmer clients.  No one else – not even the new CWB – can say that.

The new market is here.  Even Anders Bruun, lawyer for the Friends of the CWB recently stated, “Things may have changed so much that the monopoly couldn’t possibly be restored”.  We have crossed the Rubicon – there is no going back.    

Let's not forget that there's a lot more to this change than unplugging the CWB. Anyone who expected this industry to just slip into the future without a scratch – whether you thought it would be good or bad - would have been misled.  And although there are challenges ahead, I’ll take them over the Compulsory Wet Blanket any day of the week.

Take a deep breath.  It sure smells good.

Friday, May 25, 2012

Back to the Futures

The Way We Were

Supporters of the CWB single desk often draw our attention to the past – not so much the recent past – rather, to the era of our great-grandfathers.  They say that without the CWB single desk, the market will revert back to those dark days.  Back to when pioneering farmers would harvest their crop and deliver it to the local elevator only to find that everyone else was delivering at the same time.  The elevators could handle only so much at one time and with so much being offered and poor communication and uncertainty of prices in distant markets, the price at the elevator would drop.  

There are stories that, at times, there would be no room at the elevator and farmers would go home without being able to deliver anything.  After collapsing at harvest-time, prices would rebound, climbing much higher later in the year as the demand for wheat was still there but there was less to deliver.  Two things were missing in this early market: effective communication and a structure to provide effective prices for later delivery.

It would be many years before the communication problem was solved.  But in the early days some progressive grain merchandisers came up with the idea of forward contracts – an agreement to deliver at a later time.  Typically, that meant a higher price than at harvest; “I can only pay X now, but if you commit to deliver later in the year, I can give you X+Y”.  These contracts gave incentives to store grain – actually paid to store grain – through higher prices and provided more certainty of market values allowing greater forward planning.  

These forward contracts increased in popularity and the notion of standardizing them to make them more liquid led to the development of futures contracts.  With futures, more than ever, grain merchandisers could set a price more closely related to the market in distant locations.  And there was a mechanism to reflect the value of grain for different time frames.  The “market” value of storage was now exposed for all to see and gain from.  This would have huge implications regarding grain pricing, handling and logistics.

The Day the Earth Stood Still

When the CWB Single Desk was established in 1943, the government simultaneously closed down the Winnipeg Grain Exchange wheat futures market.  Since all grain was to be sold through the CWB, it was felt there was no need for the services of a futures market, showing an abysmal misunderstanding of what its value and purpose was.

(Here’s a little irony; when the CWB single desk was established in ‘43, it was estimated that 500 people in Winnipeg would lose their jobs.  Now that the CWB is losing the single desk, supporters of the CWB have lamented the loss of the CWB’s 430 jobs.  So, apparently, both the establishment and the end of the Single Desk caused job losses. That would be quite a feat if it were true.  The fact is that although the CWB’s payroll is shrinking, many CWB employees are getting new jobs in Winnipeg, both within the grain industry and elsewhere.) 

With the end of wheat futures trading in Winnipeg, wheat prices were pooled among farmers, presented as an Initial Payment on delivery with a final payment some time later – a system that remains until July 31st of this year.  Benefits of the futures market such as independently and openly identifying prices and market-based values of storage, movement and logistics were totally lost, sending the industry navel-gazing through studies and numerous Royal Commissions in an attempt to figure out how to make the market work better.  Unfortunately, whenever a different role for the CWB was suggested, it was always ignored by the government of the day.  Changing the way grain was marketed was never seen as an option to improve how grain was marketed.  Go figure.  

A few months ago I asked a senior executive at the CWB what he felt was the most important part of pooling.  His answer came quickly: “Getting the same price regardless of when you deliver.”  This goes completely contrary to the efficient use of the grain handling system.  Arbitrarily setting prices and centrally controlling access to the system, ultimately ends up making the system less efficient, raising the cost of the system to farmers.  It seems that to those that believe in the single desk, “equity” trumps efficiency.

Back to the Futures

With the end of the Single Desk, Western Canada is entering a much less regulated, open market.  Pricing of what were once called CWB grains will be determined by the natural interaction between producers and merchandisers and will be a function of demand, system capacity, transportation capacity, and hopefully – forward prices and storage.  Competition will play a role reducing costs. 

Futures play a fundamental role addressing many of the issues with moving to an open market.  The primary value of futures – what we are all familiar with – is in risk mitigation, or hedging.  A close second is price discovery.  However, the reduction of margins (costs) between the primary producer and the ultimate end user is often overlooked; fully functioning futures contribute substantially to getting lower prices for the end user and higher prices for the farmer. 

Another fundamentally important aspect of futures is the provision of independent market-based values of storage and by extension, logistics.  Through carrying charges the futures market signals that the market will pay to store grain.  (Even farmers can take advantage of this.)  When the market is inverted – the nearby month higher than the later months – the market will not compensate you to store grain; it is signalling to sell and move grain.  Responding to these types of signals makes the whole market and grain handling system work more efficiently.

Most, if not all, grain merchandisers have position limits that dictate how much price risk they can take on at any given time.  Without a mechanism to lay-off some of the risk (futures) merchandisers are limited to the amount of business they can take on at any given time.  With the flexibility from futures, the marketplace will present greater opportunities for more firms – big and small.  Futures allow more players of more sizes to participate on a more-or-less equal footing.

The new CWB is entering a market that is somewhat foreign to its well-established culture.  It will do well to reject its standard view of the value of pooling and embrace a more market-oriented view of futures markets and what they do for the efficient use of the grain handling system.  If it doesn’t, it will struggle to succeed in a market with merchandisers and farmers that do.

Saturday, May 19, 2012

Risk Management in the New Market

As we enter the new "un-CWB" market, we will be looking at marketing grain in a familiar way – but there could be substantial differences to what we know.  The recently announced CWB pools look to be similar to their previous offerings - and there may be more pools offered.  But I'm talking not talking about pooling; I’m talking about the open market.  And marketing wheat in the open market could be quite different than what we are used to.

We already have experience in marketing canola with futures and basis – and a wee bit with other crops like barley and domestic feed wheat (and, if you've been around as long as me, flax and rye too).  But with wheat and durum, in western Canada we could be faced with a difference that we will be well-advised to think carefully about.

There are many aspects about this market that will be new - real protein spreads (not muted by pooling); grade and protein discounts or premiums that can't be locked-in with a forward contract, and new delivery opportunities, unfettered by Contract Calls.  Also, we will see real market pricing in the form of futures and basis.  

One of the biggest challenges could be using Minneapolis wheat futures – a US dollar futures contract – to hedge and manage price risk on wheat priced in Canadian dollars.

First, using any US dollar based futures contract, there is price risk in Canada simply due to the fact that the Canadian dollar is not at par with the US (most of the time).  And second, there is basis risk that comes from a change in the exchange rate.  Neither of these will be familiar to most people in Western Canada.

Let's look at the first one.  If Minneapolis wheat futures are at 7.90 and the fob basis on the west coast is 80 over, then the flat price on the west coast is $8.70 US fob.  Assuming an exchange rate of 0.90, and assuming US and Canadian west coast values are the same, this translates to a Canadian west coast value of $9.67 Cdn.  If futures drop to 6.90 US but the US fob basis remains at 80 over, the US flat price is now $7.70 US, and assuming no change to the exchange rate, the Canadian flat price changes to 8.55 Cdn.  Futures dropped $1.00 but the Canadian price dropped $1.12/bu.

The lesson here is that a conventional 1:1 (or pound for pound) hedge will not provide the coverage you might expect.  Even though the exchange rate didn’t change, you have a foreign exchange based price change; it’s what is called “non-volatile foreign exchange risk”.  The answer is to include a foreign exchange position to your hedge – and here’s where the complication just begins.

The second oddity is the impact of foreign exchange on a basis contract – just one aspect of what is called “volatile foreign exchange risk”.  In Eastern Canada, the foreign exchange rate (and risk) is imbedded in the basis.  For example, if CBOT corn futures are at $5.00 US and the local cash basis is 1.25 over, the corn cash price (futures plus basis) in Ontario is $6.25 Cdn.

Note I didn't say whether the basis was in US dollars or Canadian.  That's because it's neither.  If it was in USD, then the resulting cash price would be $6.25 US.  If the basis is in Canadian dollars, then you'd be adding a US dollar amount to a Canadian dollar amount and you can’t really do that and still make sense.

Imbedding the currency rate in the basis makes it really easy to talk about cash grain prices in Canadian dollars – it’s as if they assume the futures are in Canadian dollars – but it adds a risk component to the basis unfamiliar to most people in Western Canada and complicating risk management processes.
For example, let's say Dec Minneapolis wheat futures are at $7.90 US , the Cdn/US exchange rate is 0.92US (one Canadian dollar = 92 cents US) and the cash market in Western Canada for fall delivery works out to $7.00 Cdn.  Using the Eastern Canadian approach, this would mean the cash basis is 90 under. (7.00 - 7.90 = -90)

Now, what happens when the exchange rate goes to 0.98 but the Minneapolis futures remains at $7.90 and the world value of wheat doesn't change either?  The change in the exchange rate alone would mean that cash wheat in Western Canada would change from $7.00 to $6.57 (Canadian dollar strength means commodity prices weaken in Canadian dollar terms – something we’re all used to).  But what we’re not used to is that this would translate to a change in the basis – in this case, to 133 under, down from 90 under.

In this example, even though the underlying fundamentals of the wheat market didn't change at all, the basis dropped 43 cents per bushel.  To most of us, that’s counter-intuitive.  Think about the same situation with canola; when the Canadian dollar strengthens (pushing the flat price of canola lower), the canola basis remains unchanged.  In other words, the exchange rate has no impact on the canola basis.  Clearly it has an impact on the flat price - just not the basis. 

So there's the difference.  A weak Canadian dollar will impact Canadian cash prices, but if we use a US futures contract, the impact on the cash price would be found in the basis.

All this would make life somewhat more complicated for both the farmer and the grain merchandiser.  For a farmer it will be more difficult to effectively manage the price risk of wheat using a US-based futures contract and get the result he wants.  Same goes for a merchandiser who will necessarily need to add a risk component to his pricing.  Both will need to understand the foreign exchange implications to their marketing strategies, and just as importantly, they will need both the facilities and knowledge of how to manage that risk.

ICE Futures

I have heard people questioning why the new ICE futures contracts are not listed and trading in US dollars.  The value of Western Canadian wheat is determined globally and so some think the futures contract should reflect that.  However, as described above, that would just complicate life (and increase costs) in Western Canada.  Even though the value of the majority of Western Canadian canola and its products are determined globally, the ICE canola contract is in Canadian dollars and works extremely well for Western Canadian interests as well as for foreign buyers.  The same could not be said if it was traded in US dollars.  

Trading spring wheat futures for Western Canada in Canadian dollars just makes common sense.  It reduces risks and avoids unfamiliar risks as outlined above.  There are many reasons why the new ICE contracts should be supported.  The potential impact of foreign exchange on our competitiveness is just one of them.

I’ve been asked why I haven’t been writing as much as before.  This and other aspects of risk management have led me to work on developing new marketing tools and techniques that will address these new factors – taking time away from my blogging.  I plan on writing more as things come up, but my focus has been on these new tools – details of which I will share as soon as possible.

Thursday, March 22, 2012

Barley Opportunities

I recently completed work on a project for the Western Barley Growers Association, aimed at determining the best market structure for barley.  It was a big project; three of us worked on a lot of number crunching and a lot of consultations with the barley industry, interviewing over 80 people in more than 60 companies, representing five countries (Canada, USA, China, Japan, and Australia).  We even sent one of our team to China to get a first hand view of what is happening in that important market.  And it was worth it; the fundamental thing we found was that going forward, things look pretty good for barley.

The idea of the project emerged while the CWB single desk was still in place.  With that structure, there were many problems; low profitability and lack of exports primary among them, and it was apparent that the single desk may be one of the problems.  Even though the single desk will soon end, changing the marketing structure dramatically, the project was still relevant since the end of the single desk created a new market with many questions and issues that need to be addressed.



Australia is our biggest malt barley competitor in China.  In recent years, anywhere from 40% to 80% of Chinese barley imports came from Australia.  Meanwhile, Canadian market share has bounced around 20%.  We had to find out what Australia is doing differently.

What we found was that the largest part of the Chinese malt barley market was more interested in low cost than high quality.  Into this market the Aussies have been selling malt barley that doesn’t quite make the grade for the highest quality malt barley.  Their “Fair Average Quality” (FAQ) barley allows specifications that the high quality buyers would not be interested in – higher protein, perhaps less plump, a little stained, and so forth.  As one person put it, “The only thing that really matters is ‘can it germinate’?”  While not good enough for the high profile international brands, it serves the purpose for the lower quality requirements for the Chinese domestic market – and at a lower price.

Although it’s not clear why the CWB has not penetrated this market, it appears that the CWB’s strategy was to remain in the high quality market.  The problem with this focus on high quality malt barley is that if your barley doesn’t meet the high standards being called for and is rejected, it becomes feed barley.  This means, rather than being one of the best returns on a per acre basis, it becomes one of the worst.  Many farmers have said that the risk is just too high and therefore, they don’t grow barley anymore; the acreage declines we’ve been seeing certainly support this.

An open market with Canadian exporters (including the CWB) competing in the larger, lower quality market in China should help.  Think about it; you grow Metcalfe under contract but when the samples go in, although your germination is great at 97%, your protein is a little high.  Whereas it previously would be rejected out of hand, now you could see it still accepted as malt barley but with a discount.  Instead of dropping all the way down to feed values, you get a price somewhere between the top malt price and feed. 



In Japan, things are much the same, only different.  Japan imports barley for feed as well as for food products like mugicha (barley tea).  And, just like in China, Australia enjoys as much as 80% of the Japanese market, while Canada hovers around 20%.  But it's not because Australia offers lower quality, it's because it provides higher quality than Canada.

A few years ago there was a group of Japanese buyers touring the prairies, checking the crop progress and meeting with farmers and grain handlers.  While they were visiting a farm in central Alberta, one of the Japanese buyers looked in a five-gallon pail sitting just inside the shop door.  Reaching in, he pulled out a handful of grain and asked the host farmer, "What is this?" The farmer took one look and said "that's feed barley".  The Japanese visitor said "we buy Canadian barley every year and we never get anything that looks this good."

Comparing how Australia and Canada handle barley tells an interesting story.  Most of Australia’s barley is grown in four separate states, each with their own export ports.  Barley grown in Western Australia gets shipped out of one of its ports; barley grown in Southern Australia gets shipped out of its ports – and so on.  If Western Australia has a good crop and the other states don't, that high quality barley can find its way to a high quality buyer without getting mixed with lower quality barley from other regions.

We do things differently in Canada.  All barley grown in Western Canada and exported to Japan gets shipped via terminals in Vancouver, regardless of where it was grown.  So if Central Alberta has a very good crop and Saskatchewan has a poor quality crop due to bad weather – but still good enough to grade a #1 CW, and if barley from both goes to the CWB, it all goes to Vancouver and if it all "grades" the same, it goes in the same bins.  There's been no apparent incentive to identify and segregate really good barley from the not so good barley - even though there may be a "premium" market for it.
We also learned that the CWB barley pool has often been used by farmers to market their poorer quality feed barley that the local feeders won't take.  It may still qualify as a #1 but lightweight.  So unfortunately the CWB hasn't had consistent access to the best barley grown in Western Canada keeping it from competing head-to-head with the Aussies.  Which explains the surprise by the Japanese buyer when he saw the good quality barley we can produce.

I'm told that the CWB did not go after the lower quality malt barley markets in China (at lower prices) because it was felt it would dilute the malt pool price.  I've never been told why the CWB didn't find a way to go after the high quality feed barley market in Japan but I suspect it's because they would be challenged to find and segregate the high quality barley; it certainly would have to compete with the larger domestic feed market which would make it a real challenge to attract and segregate volumes of high quality feed barley.



The US has experienced a similar drop in barley acres as Western Canada, due to fusarium and more profitable crops like corn and soybeans emerging in the northern tier states.  Now, most of the barley grown in the US is under contract to maltsters.  Many in the industry suggest that in the near future we will see American maltsters contracting directly with farmers in Western Canada, now that they can, adding even another competitive factor in the emerging barley market.